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China’s Exodus of Capital

As the economy slips, individuals and companies have been pulling money out of the country en masse, although there are signs the government has started to staunch the flood.

How Bad Is It?

Over the last year and a half, individuals and companies have moved about $1 trillion out of China as the economy weakens. Those outflows have been partly offset by money coming in from the trade surplus.

China’s net inflows and outlows

+

$100

billion

+

50

0

–

50

–

100

–

150

Net financial capital flow

–

200

Flows out

of China

–

250

’07

’09

’11

’13

’15

China’s net inflows and outlows

+

$100

billion

+

50

0

–

50

–

100

–

150

Net financial capital flow

–

200

Flows out

of China

–

250

’07

’09

’11

’13

’15

China’s net inflows and outlows

+

$100

billion

+

50

0

–

50

–

100

–

150

Net financial capital flow

–

200

Flows out

of China

–

250

’07

’09

’11

’13

’15

The New York Times|Source: Fitch Ratings

How the Money Is Getting Out

There are various methods, legal and otherwise, to move capital out of China.

Finding “Smurfs”

Chinese citizens who want to send more than $50,000 — the allowable limit — out of the country can arrange for relatives or friends to exchange money for them.

Buying overseas businesses

Businesses and wealthy families can spend up to $1 billion on acquisitions with minimal scrutiny.

Buying life insurance

By buying a policy denominated in American dollars, and paying for it in Chinese renminbi, individuals can take money out of the country, although China is tightening limits on this.

Tinkering with trade

A company that exports goods declares only a fraction of the goods’ value to the authorities. An overseas buyer wires money to China for that fraction and puts the rest of the money into the exporter’s overseas bank account. This dubious practice is known as underinvoicing exports.

What Is the Problem?

The outflows have put significant pressure on the Chinese renminbi, eroding financial confidence and forcing the government to dip into its reserves to shore up the currency. The reserves increased modestly in March, suggesting a small improvement in the situation.

5.5

renminbi to one dollar

6.0

Renminbi

6.5

Scale is

inverted

APRIL 7:

6.46

7.0

7.5

8.0

8.5

’00

’02

’04

’06

’08

’10

’12

’14

JUNE ’14:

$4.0 trillion

$4.0

trillion

China’s foreign

currency reserves

3.5

3.0

MARCH ’16:

$3.21 trillion

2.5

2.0

1.5

1.0

0.5

0

’00

’02

’04

’06

’08

’10

’12

’14

5.5

renminbi to one dollar

6.0

Renminbi

6.5

APRIL 7:

6.46

Scale is inverted

7.0

7.5

8.0

8.5

’00

’02

’04

’06

’08

’10

’12

’14

’16

JUNE ’14:

$4.0 trillion

$4.0

trillion

China’s foreign

currency reserves

3.5

MARCH ’16:

$3.21 trillion

3.0

2.5

2.0

1.5

1.0

0.5

0

’00

’02

’04

’06

’08

’10

’12

’14

’16

The New York Times|Sources: Reuters; The People’s Bank of China, via CEIC Data